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The Dubai International Financial Centre (DIFC) and the London Court of International Arbitration (LCIA) have agreed to collaborate in establishing a new arbitration forum for the Middle East.

The announcement, at the LCIA’s annual symposium held at the DIFC, had been foreshadowed in the legal press and in itself was not too much of a surprise to the delegates. However, DIFC Head of Arbitration Ibrahim Belselah then made known the jurisdiction of this new arbitral regime. That announcement was greeted rather differently, sparking a flurry of questions and audience-led discussion.

The proposed dispute resolution regime, once operative, is almost guaranteed to create a level of accessibility, certainty, and confidence unrivalled in the Middle East.

The DIFC is a free zone within Dubai. Uniquely, it is subject to its own legal and regulatory regimes which are separate and distinct from 'mainland' United Arab Emirate procedures. It has its own court (the DIFC Court) and its own judges (the Chief Justice being Sir Anthony Evans). The rules of procedure in the DIFC Court are, principally, the English Commercial Court rules and the applicable substantive law is the Law of England & Wales (as adapted by the DIFC Laws).

This legal regime has greatly assisted the DIFC in its attempts to attract foreign business and has helped the DIFC become the world's fastest growing financial centre.

DIFC Procedures Had Rather Narrow Application

However, the regime has had, up to now, relatively narrow application. The DIFC Court's jurisdiction, by virtue of Dubai Law No. 12 of 2004, is, in essence, restricted to all civil or commercial cases arising from, or relating to, a contract that has been executed, or a transaction that has been concluded, in whole or in part, in the DIFC. The exact extent of this jurisdiction has been the subject of much academic debate but it is yet to be fully tested before the DIFC Court. On any analysis though, it has obvious limitations.

Similarly, the DIFC Arbitration Law (No. 8 of 2004) provides that, unless otherwise agreed in writing, the law will only apply to arbitrations in relation to a dispute arising out of or in connection with the DIFC and to which at least one party is an Arbitration Party (defined as being a person who would be entitled to bring an action in the DIFC Court).

Amendments Mark a Sea Change

Mr Belselah's announcement marks a sea change in approach. Mr Belselah announced that the DIFC Arbitration Law will be amended to remove the current jurisdictional limitations In essence, contractual parties, wherever they are based and whatever the subject matter of their contract, will be able to agree to refer a dispute to arbitration in the DIFC. Thus they will be able to agree that any dispute between them will be:

1. Subject to the substantive Laws of England & Wales (as adapted by the DIFC);
2. Subject to a procedural law which is based on the UNCITRAL Model Law and the English Arbitration Act 1996;
3. Supervised by the DIFC Court (whose principal judges are Sir Anthony Evans and Michael Hwang); and
4. Administered by the LCIA.

Enforceable as a UAE Award

Perhaps the biggest attraction of the new regime relates to enforceability. A DIFC arbitral award, as currently envisaged, will be enforceable as a UAE award. Thus, it will be enforceable worldwide pursuant to, and subject to the terms of, the New York Convention 1958. Significantly, a DIFC arbitral award is likely to be more readily enforceable in Gulf Cooperation Council countries than are awards rendered by other New York Convention states.

Amended Law Circulating for Consultation, Likely to be Enacted Soon

The amended law is scheduled to be circulated for consultation within the next few weeks and is likely to be enacted shortly after that process has been concluded. There will inevitably be a need for judicial interpretation in relation to the law's application and contractual parties should obtain specific advice when drafting their arbitration clauses in order to avoid a number of potential pitfalls. However, if correctly drafted, a DIFC arbitration clause could resolve a number of the usual concerns that foreign investors have when investing into the Middle East.

A body of the standing of the LCIA will undoubtedly be a welcome addition to the dispute resolution market in Dubai, and the Middle East generally. However, the certainty and confidence which will be created by the amendment to the DIFC Arbitration Law will set this new framework apart from any other dispute resolution forum in the region.